What is Strategic

Management
 Strategic Management
• Strategy is an integrated and coordinated
set of commitments and actions designed
to exploit core competencies and gain
competitive advantage
• A firm has competitive advantage when it
implements a strategy that rivals are
unable to duplicate or find it too costly to
copy
Industrial Organisation ( I/O model)
• It stresses the external environment’s dominant
influence on a firm’s strategic decisions
• According to it – the industry in which a
company chooses to compete has a stronger
influence on performance than do the choices
managers make inside their organisation
• The firm’s performance is determined by range
of industry properties – economies of scale,
barriers to market entry, diversification, product
differentiation etc.
 Assumptions for I/O Model
• External environment is assumed to impose pressures
and constraints that determine the strategies that would
result in above average returns.
• Most firms competing within an industry or within a
certain segment of that industry are assumed to control
similar strategically relevant sources and to pursue
similar strategies in the light of resources
• Resources used are assumed to be highly mobile
across firms, so any resource difference that may
develop between firms shall be short lived
• Organization decision makers are assumed to be rational
and committed to acting in the firm’s best interest.
 The I/O model
1. Study the external environment – general environment,
industry environment and competitor environment
2. Locate an industry with high potential for above
average returns
3. Identify the strategy called for by the attractive industry
to earn above average returns
4. Develop or acquire assets and skills needed to
implement the strategy
5. Use the firm’s strengths( its developed or acquired
assets and skills) to implement the strategy
 The Resource based model
• It assumes that each organisation is a collection
of unique resources and capabilities and that is
the basis of its strategy
• Resources – inputs in the production process –
capital equipment, employee skills, patents,
finances etc
• Resources can be source of competitive
advantage if they are formed into a capability
• Capability is a set of resources to perform a
certain task
 The Resource based model
• According to RB model, firm’s
performances is dependent on firm’s
resources and capabilities rather than
industry structure
• In order to generate competitive
advantage, resources should be
– Valuable
– Rare
– Costly to imitate
– nonsubstitutable
 The Resource based model
1. Identify the firm’s resources and study its strengths
and weaknesses compared with those of rivals
2. Determine the firm’s capabilities – what do the
capabilities allow the firm to do better than its rivals ?
3. Determine the potential of the firm’s resources and
capabilities in terms of a competitive advantage –
ability of firm to outperform rivals.
4. Locate an attractive industry – with opportunities that
can be exploited by the firm’s resources and
capabilities
5. Select a strategy that best allows the firm to utilise its
resources and capabilities relative to opportunities in
the external environment